Exercising discretion when applying to the court for a Council Tax Liability Order
Dear Fylde Borough Council,
The Council Tax (Administration and Enforcement) Regulations 1992 (the "Regulations") confer a duty on the billing authority to exercise discretion under regulation 34(1) when deciding whether to institute a complaint to the Magistrates' court to enforce payment.
Regulation 34(1) as amended by Regulation 15 of SI 1992/3008 states, with the relevant part emphasised, as follows:
"If an amount which has fallen due under paragraph (3) or (4) of regulation 23 (including those paragraphs as applied as mentioned in regulation 28A(2)) is wholly or partly unpaid, or (in a case where a final notice is required under regulation 33) the amount stated in the final notice is wholly or partly unpaid at the expiry of the period of 7 days beginning with the day on which the notice was issued, THE BILLING AUTHORITY MAY, in accordance with paragraph (2), apply to a magistrates' court for an order against the person by whom it is payable."
Regulation 34(2) states as follows:
"The application is to be instituted by making complaint to a justice of the peace, and requesting the issue of a summons directed to that person to appear before the court to show why he has not paid the sum which is outstanding."
The following are examples (but by no means exhaustive) of what are reasonable factors a recovery officer should take into account in exercising discretion to institute a complaint to the Magistrates court under paragraph (2) of regulation 34 of the Regulations:
1. the level of debt outstanding
2. any payments made subsequent to the full amount becoming due and time remaining of the financial year
3. are circumstances indicative of the debt being settled without resorting to enforcement
4. consider if enforcing the debt would unnecessarily subject the taxpayer to additional costs etc. and therefore amount to a penalty (see 3 above)
5. ensure monies have been prioritised to maintaining the in-year debt
6. allocate to the in-year any monies posted to arrears (or sufficient of it) that would if it had not been misallocated prevented the in-year liability also falling in arrears (see 5 above)
7. check for benefit claims or appeals already in the system and refrain from taking enforcement action where such genuine cases are unresolved
Q1. Does Fylde Borough Council exercise discretion before proceeding under regulation 34(2) of the Council Tax (Administration and Enforcement) Regulations 1992 to request a summons from a justice of the peace (it may be an automated process)
Q2. If yes to (1) what factors are taken into consideration
Dear Ms Barker,
In the light of the unprecedented situation and the need to direct public resources towards the coronavirus crisis, I would ask that you reconsider your request. If I do not hear from you further, I will assume that you have taken the decision to withdraw your request and allow resources to be directed to where they are most needed.
Dear Lyndsey Lacey-Simone,
Response to this request is long overdue. By law, under all circumstances, Fylde Borough Council should have responded by now.
Good Morning Ms Barker,
Thank you for your email.
Further to your FOI request of 6 May, I wrote to you on 7 May outlining the Council's position. My email stated that " if I do not hear from you further, I will assume that you have taken the decision to withdraw your request and allow resources to be directed to where they are most needed"
I do not have on record any other emails from yourself.
I hope that helps.
Dear Lyndsey Lacey-Simone,
Thank you for your response. I have just about worked out from the council's website that discretion is not exercised at the point where a decision is needed to be made about whether to request a summons.
I do not wish to pursue this, however, the council might want to reconsider its actions regarding the recovery of Council Tax in light of the issues. Note later on under the heading 'NO LEGAL BASIS TO PURSUE LIABILITY ORDER ONCE AN AMOUNT AGREED' the point discussed is not a discretionary matter. I suggest this and the other points raised are considered by the Monitoring Officer, but that is of course a matter for the council to decide.
It does not constitute discretion if a decision of whether to apply it or not depends on being prompted by the customer, parameters being agreed in advance relating to the outstanding monetary value of a customer's account or other information that can be input so the council tax processing system can detect it when running the complaint list. Discretion could only be appropriately applied at a stage when the summons is normally requested, i.e. when all the relevant circumstances are known about the customer's account at that particular time.
The council's website indicates that discretion is applied earlier than at the point where a decision is needed to be made about whether to request a summons, after a summons has been issued but before a liability order is obtained and after a liability order has been obtained, primarily to make payment arrangements which need to be monitored after the debt is secured by a liability order. The actual process of running the complaint list and the summonses is automated for which the defendant incurs disproportionate costs.
It is apparent from information I have seen that the defendant incurs a £72.50 sum in respect of the council requesting the issue of a summons (an automated procedure). However, that sum will actually cover the council's additional expenditure in respect of sending out reminders and officer time engaging with customers who query their accounts at these points. Also the same for final notices (see below) and after a summons has been issued in respect of customers who query their accounts to arrange payment plans which are conditioned upon the council obtaining a Liability Order (to secure the debt). The £72.50 sum is added to the accounts of all customers who have not paid the total amount outstanding of their liability, whether choosing to query their accounts or not and those who have settled their accounts before a liability order is applied for. This is to compensate the council for the officer time attributed to dealing with customers (in respect of those who contacted them) and making the application for a Liability Order (on day of the hearing).
Before the summons stage (final notice), it is possible for a customer to avoid summons costs, for example, a taxpayer who has lost her right to pay by instalments may have them effectively re-instated if she manages to secure a payment plan. Discretion whether to enter into a payment agreement with a taxpayer is applied again once the council has obtained a liability order (as an alternative to taking recovery action) but of course by that time she would have had the total £72.50 court costs added to the debt and included in the payment plan.
So the costs in reality cover the council's expenditure (additional to the issue of the summons) attributable to before the summons is requested, both after the summons is requested but before the liability order application and after the liability order has been obtained in respect of officer time engaging with customers who agree to enter into payment arrangements. The costs must therefore with absolute certainty cover the general administration of the council tax and enforcement departments.
RELEVANT LEGISLATION AND CASE LAW
I understand that the council must adhere to the Council Tax (Administration and Enforcement) Regulations 1992 and also be mindful of all established case law regarding the area concerned.
I am aware of a number of cases but particularly two which I would like to refer to regarding the area of recovery referred to in the request namely R (Nicolson) v Tottenham Magistrates  EWHC 1252 (Admin) and Williams v East Northamptonshire  EWHC 470 (Admin)
Williams v East Northamptonshire  EWHC 470 (Admin)
The council's website advises customers that once a summons is issued, costs associated with issuing a summons and obtaining a liability order (£72.50) are added to their bill.
I am aware that in the East Northamptonshire case, the judgment went to some lengths to clarify the position with regard to when, i.e. at what stage it was permissible for a billing authority to add summons costs to a customer's account. In essence, what the judgment determined was that it was entirely lawful for the billing authority to inform the customer by stating on the summons the amount of costs it would ask for in the event it proceeded to make the application at court for a Liability Order. Implicit in this is that it is impermissible to add to the customers account at this point the costs claimed by the billing authority because there is only any legal basis to do so once the court has granted the Liability Order. The following in paragraph 28 of the judgment bears this out:
"...I have come to the clear conclusion that the summons is not an abuse of the process or otherwise invalid by reason of the fact that it includes reference to a claim for costs. The heading of the summons makes clear it seeks recovery of the Council Tax only. The complaint is therefore only as to the non payment of the Council Tax. The tax due is the Council Tax which is separately identified both on the first page and on the subsequent page. It is abundantly clear that the subject matter of the summons is therefore the recipient’s liability for the Council Tax...."
NO LEGAL BASIS TO PURSUE LIABILITY ORDER ONCE AN AMOUNT AGREED
The council's website also advises that it is possible to agree a special payment arrangement once a summons has been issued (but before the court hearing). It is assumed, because this is generally the approach taken by local authorities, that the council will continue with recovery action and ask the court for a liability order (to secure the debt) and the £72.50 costs will be included in the payment arrangement.
These costs are incurred at a point after the customer has tendered payment. Therefore, the cost attributable to this activity could not lawfully be included in the costs claimed because expenditure may only be recharged that has been incurred by the authority up to the time of the payment or tender and clearly resources called upon by engaging staff in the matter would occur after payment was tendered. Expenditure incurred by the authority after that point falls on the wrong side of line to be referable to the summons and would only be lawfully recharged (if eligible) in respect of those who had not paid or tendered to the authority the aggregate of the outstanding amount and costs before the court hearing because only those customers may be proceeded against further and incur additional costs.
To be clear, it is not just the costs in these circumstances which are artificially inflated by either front loading or being charged where there is no legal basis at all which is a point of contention. The consequences are that for all those cases against whom the council proceeds in order to secure the debt once an amount has been agreed (the payment arrangement), the action is unlawful because regulation 34 of SI 1992/613 provides that the authority shall accept the amount and the application shall not be proceeded with in these circumstances.
Paragraph 34(5) of the regulations, are as follows (with emphasis):
“(5) If, after a summons has been issued in accordance with paragraph (2) but before the application is heard, there is paid or TENDERED to the authority an amount equal to the aggregate of—
(a) the sum specified in the summons as the sum outstanding or so much of it as remains outstanding (as the case may be); and
(b) a sum of an amount equal to the costs reasonably incurred by the authority in connection with the application UP TO THE TIME OF THE payment or TENDER,
the authority shall accept the amount and the application shall not be proceeded with.”
The authority could not defend its actions on the grounds that an arrangement does not constitute payment therefore it is entitled to obtain a liability order to secure the debt because the law does not say that the amount must be paid for the application not to be proceeded with, only that the amount tendered is accepted (the aggregate of the outstanding amount and costs). By agreeing a payment plan which encompasses the outstanding amount and costs (costs which are properly referable to the enforcement process) the authority has accepted the amount and so there is no legal basis to proceed to obtain a liability order from the Magistrates' court.
Notwithstanding the lack of provision to proceed once the aggregate of the outstanding amount and costs has been agreed by the council, even if it were permissible, these costs and any other incurred would have further criteria to meet for the court to be satisfied that they were reasonably incurred.
R (Nicolson) v Tottenham Magistrates  EWHC 1252 (Admin)
The Tottenham case provides in the judgment some general guidance regarding Council Tax Liability Order court costs and give clues (paragraphs 35 and 46) as to what should not be included in the costs and an approach that might be legitimate in respect of averaging the costs.
“It is clear that there must be a sufficient link between the costs in question and the process of obtaining the liability order. It would obviously be impermissible (for example) to include in the costs claimed any element referable to the costs of executing the order after it was obtained, or to the overall administration of council tax in the area concerned.” (Paragraph 35)
"In principle, therefore, provided that the right types of costs and expenses are taken into account, and provided that due consideration is given to the dangers of double-counting, or of artificial inflation of costs, it may be a legitimate approach for a local authority to calculate and aggregate the relevant costs it has incurred in the previous year, and divide that up by the previous (or anticipated) number of summonses over twelve months so as to provide an average figure which could be levied across the board in "standard" cases.." (Paragraph 46)
However, the above does not go so far as to specify what the right types of costs and expenses are, plus the 1992 Council Tax Regulations (and associated guidance) also apply so any provisions in those capable of establishing what are "relevant costs" need taking into account. Crucially, the possibility that the approach of averaging the costs is conditional upon the right types of costs and expenses being taken into account and being mindful of the dangers of artificially inflating the costs.
Government guidance from 1993 and 2013 both provide within them that "the Court may wish to be satisfied that the amount claimed by way of costs in any individual case is no more than that reasonably incurred by the authority". They do so because the court is obliged to hear individually anyone wishing to raise a defence and regulation 35(1) of the Regulations provides that a single liability order may deal with one person and one amount.
The streamlining of the process, i.e. by hearing cases of all the defendants in a bulk application who decline the invitation to defend themselves would if the law was properly applied be met with a forfeiture of costs income because only expenditure which is common to every defendant may lawfully be included in a standard sum. For example, even if expenditure attributable to engaging with customers agreeing payment arrangements was not impermissible for the reasons discussed, they would not otherwise be deemed "relevant costs" to be included in the calculation because the expenditure is not common to every defendant but also because it would be impermissible to include in the costs any element referable to the overall administration of council tax in the area concerned (para 35, Tottenham judgment).
Looking now just at general expenditure incurred in dealing with customer's queries in the context that all the £72.50 costs are applied on issue of the summons so that the same sum is incurred by customers whether or not their cases proceed to court. For those customers whose cases do not proceed, their costs are artificially inflated because the amount they're charged requires to be a lesser sum than the £72.50 total claimed to have been incurred by the council to obtain the order which is referable to regulation 34(7). The costs claims in connection with issuing the summons, which are relevant for these customers, are provided in regulation 34(5). The Tottenham judgment reinforces this in para 46, warning that a standard sum would require the right types of expenses being taken into account with due consideration given to the dangers of double-counting, or of artificial inflation and in para 50 saying that "what matters is that the costs that it does decide to claim are properly referable to the enforcement process". So, even if the work was not referable to the overall administration of council tax (which arguably it is) and considered referable to 'the right types of costs and expenses', the expenditure attributable to dealing with those customer's queries who subsequently pay to the authority the aggregate of the outstanding amount and costs before the court hearing would have paid an element of front loaded costs, i.e. which were not properly referable to the enforcement process.
It can particularly be said with regard to Fylde that the summons costs explicitly encompass an element of front loaded expenditure because it is stated on the council's website that "costs associated with issuing a summons and obtaining a liability order are added to your bill".
There is also the anomaly that the customers who to the greatest degree drive the level of activity are ironically avoiding the recovery process and not incurring any costs. These are generally those customers who have negotiated their instalments being re-instated by agreeing new payment terms, whilst customers who settle their debt without causing additional work are left subsidising this expenditure when bizarrely none is incurred in connection with their summonses.
Expanding further on the concept of "reasonably incurred". If the costs are to be recharged lawfully to the customer it must have been reasonable for the council to have incurred them. Any expenditure recharged to the customer in respect of costs has not been reasonably incurred which is attributable to activity carried out by the council above what is necessary to secure the court order. Obtaining the order is merely a formality and it functions simply as the vehicle empowering the council to make use of a range of enforcement measures to pursue monies owed should it be necessary once it is in place, so with that in mind and that applications are made en masse, then the vast majority of costs typically claimed by local authorities are not necessary in a process which amounts to no more than seeking permission from the court.
Expenditure attributable to work carried out, which is clearly by its nature referable to the overall administration (in the area of council tax concerned) would not by virtue of it coinciding with when the complaint is in progress be sufficient to link it to the actual process of obtaining the liability order. This is separable from any that is permissible to be included in the costs claimed and would need omitting from the calculation because it would not be reasonable to expect those paying them to subsidise general administration or to be exploited as a means of funding revenues/recovery staff - and - because it is not common to every defendant.
BREAKDOWN OF COSTS
A breakdown has been obtained in relation to the councils costs 2018/2019. Fylde operates a shared Revenues and Benefits Service with Blackpool Council so the costs comprise an element of the common costs and additional expenditure directly attributable to Fylde council services, including its customer service centre, council staff time, accommodation costs, etc.
A figure is presented of £681,731 for the "Total Shared Service Summons Costs" made up of Staffing Costs (£332,529), Central Support Service Recharges (£255,043), IT Systems, Maintenance, Communications Services (£83,220) and Postage and Stationary, including Reminders, Leaflets, Envelopes (£10,938).
The apportioned Fylde costs are 26% (£176,393) of the Total Shared Service, however, the basis on which the amount is split is not offered in the breakdown. The share of joint shared service and specific Fylde Council Costs (£141,488) are aggregated to arrive at £317,881 for the total expenditure. This is the amount which the council deems it is entitled to for taking its customers to court. However, the entire amount is attributed to the issue of the summons, as opposed to being split between that cost and the Liability Order, which would be expected so there is not enough relevant information to be satisfied that the costs are properly referable to the enforcement process. The £317,881 figure is divided by the estimated number of summonses issued per year (4,415) to arrive at a figure of £72.00 per case in respect of the Cost incurred in obtaining the liability order (the Council Cost per Summons) to which is added £0.50 (Court Cost per Summons), thus the amount recharged to the customer is £72.50.
Presumably the £0.68 million (Total Shared Service) must cover far more than the entire cost of administering the council tax because many other departments are funded to a certain degree according to the spread sheet. If so, with 100% attributable to the court costs it is evident that those departments are being entirely funded by the customers who are taken to court. Also with 100% of the amount accounted for being charged in respect of the summons, it is evident that an element of expenditure is front loaded (i.e. not properly referable to the enforcement process) and a gross misinterpretation of the law has been overlooked by the court. There is not even any attempt to hide this because it openly states on the council's website that "costs associated with issuing a summons and obtaining a liability order are added to your bill". Neither does the spreadsheet attempt to hide the fact that the costs include expenditure incurred before a decision has been made to enforce, because there is evidence of the costs including expenditure attributable to the issue and preparation of reminders and the final notice. The point at which the process of enforcement gets underway is defined in the Tottenham judgment (para 43) to be when a decision has been made to pursue a complaint to the court (only then can costs be incurred in connection with the application). The consequences of this means that the expenditure is impermissible because the decision to actually pursue a complaint can not be taken by the council until either the Statutory reminder or Final Notice has failed to obtain payment.
The summons costs, by the sheer magnitude of the amount, must be attributable to the work carried out from when the summons is issued up until the court hearing (if not other activity as well). However, the Council Tax regulations (SI 1992/613) refer to this as a sum equal to the costs reasonably incurred by the authority in connection with the application up to the time of the payment (or tender). Though in practice, that amounts to the cost of issuing the summons because the council incurs no more expenditure once that has been done in respect of those who pay their outstanding liability before the hearing whether they do so straightaway or leave it until immediately before the court hearing.
The court also needs to be able to verify that the number of accounts with summonses issued and liability orders granted are accurate and haven't been estimated on the low side to artificially inflate the costs. This information is normally available for all councils in the Revenue Collection Statistics, collected and published by the Chartered Institute of Public Finance & Accountancy (CIPFA), but relies on the local authority submitting the data in its returns. The last time Fylde Council submitted this data relates to the 2010-11 CIPFA return and has for some reason omitted to do so in all other subsequent years to date (as is the practice of many other councils).
For the court to properly consider the breakdown it would be necessary for it to contain sufficient information as to how the figure was arrived at, and what costs it represents. It would also need to contain enough information to satisfy the court that the costs were incurred in respect of issuing the summons and not for carrying out general council tax administration or include costs for obtaining the Liability Order. That would, for a start, require verifying that the £0.68 million Total Shared Service figure was a true representation of the amount the law allows to be recovered from its customers for taking them to court and for it to be justified why 100% of the apportioned Fylde costs plus the specific Fylde expenditure could be attributable to issuing the summons (itemising the activities).
Clearly the calculation does not contain sufficient information to satisfy the court that the costs are reasonably incurred (though suggests the opposite), but it is quite obvious that in the majority of cases the court simply rubber stamps the orders without questioning them. It is hardly credible that the Magistrates would be mindful of the regulations, guidance and case law relevant to costs which is what the majority of councils must rely on to succeed in getting council tax administration funded from the costs recharged to customers for the formality of summonsing them to court.
It is generally accepted by billing authorities that defences against the issue of a Liability Order at the court hearing which are considered to be valid are restricted to no more than a handful. However, there are six obvious additional defences that would be valid if no discretion is exercised prior to requesting the issue of a summons and expenditure incurred by the council outside the process of applying for and obtaining a liability order is included in those costs. They would be that;
1. the billing authority has not (does not) comply with regulation 34(1) of the Council Tax (Administration and Enforcement) Regulations 1992;
2. expenditure amounting to £72.50 was not incurred by the council in respect of instituting the complaint;
3. the costs have been inflated to subsidise customers who opt to make payment in line with the pre-arranged payment plans;
4. the costs in respect of instituting the summons include expenditure which is incurred by the council after that action;
5. the costs in general have been inflated to subsidise expenditure incurred by the council in respect of officer time monitoring arrangements and/or engaging with customers after the process of applying for and obtaining the liability order has ended; and
6. the costs in general have been inflated to fund the running of the council tax and enforcement departments and/or the overall administration of council tax in the area concerned.
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